U.S. Budget Deficit Slips to $91.8 Billion in December

The U.S. economy got some modestly good news on Wednesday, as the nation's budget deficit totaled $91.8 billion in December. According to the U.S. Treasury Department, the bank bailout and stimulus spending kept outlays high, but there was no significant increase in the rate of federal revenue decline, which suggests a bottom may be forming for the government's income.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%%A Bloomberg News economists survey had expected the U.S. government to post a $92 billion budget deficit in December, the third month of the federal government's fiscal 2010, after reporting a $120.3 billion deficit in November. The U.S. posted a record $1.42 trillion deficit for fiscal 2009, nearly three times the size of fiscal 2008's $454.8 billion gap.

Further, for the first quarter of fiscal 2010, the government ran a $388.5 billion deficit, up 16.9% from the $332.5 billion deficit recorded in in Q1 fiscal 2009.

In December 2009, revenue, formally known as receipts, fell 7.9% to $218.9 billion from $237.8 billion in December 2008, with both individual and corporate income tax receipts dropping. Spending, formally known as outlays, increased 7.3% to $310.7 billion from $289.5 billion in December 2008.

However, although December's 7.9% revenue drop was large, it was roughly equivalent to November's 7.7% (to $133.6 billion from $144.8 billion in November 2008). If revenue declines flatten out, that's one sign of a recession's end.

Long Time Since the Ink Was Green

The U.S. government last ran a surplus during fiscal year 2001, the final year of the Clinton administration, posting a surplus of $128 billion. In the first year of the George W. Bush administration, Congress passed and Bush signed a roughly $1.1 trillion tax cut that immediately created a $200 billion structural deficit. Increased spending for the Iraq and Afghanistan wars, for the war on terror and for the senior citizen prescription program would subsequently increase the annual deficit to about $350 billion.

The Obama administration now forecasts a $1.41 trillion deficit for fiscal 2010, which began Oct. 1, 2009.

Still, despite the U.S. large budget deficit, the bond market has (so far) shown few signs of holding up a halt sign, regarding U.S. borrowing. Despite the government's huge borrowing needs, demand exists for U.S. debt, which is lowering interest costs to service the national debt.

The optimistic view is that December's deficit didn't exceed the consensus estimate. Equally significant is stabilizing rate of federal revenue decline. The hope is that the long period of falling federal revenues from income taxes and corporate taxes is coming to an end. Provided that trend continues, it suggests that the U.S. economy is strengthening.